CPA Reviewer in Taxation Prof. R. C.

GLORIA

GROSS ESTATE
Composition of Gross Estate
What consists the gross estate depends on the following factors:
1. Classification of the decedent such as:
a. Resident or Citizen
b. Nonresident Alien

If the decedent is either resident or citizen, gross estate includes all property whether
real or personal (tangible or intangible), wherever situated (within or outside the
Philippines).
A decedent is a resident if he lives in the Philippines whether he is a Filipino citizen or an alien (in
layman, foreigner). Thus the term “resident” for estate tax purposes refers to either a citizen or an
alien. A decedent is a citizen of the Philippines by definition of the Constitution of the Philippines.
“Under the constitution, an individual may acquire Filipino citizenship of the Philippines at birth
(e.g., one whose father or mother is a citizen of the Philippines), or may become a citizen of the
Philippines sometimes after birth (e.g., one who is naturalized in accordance with law). Philippine
citizenship may be lost or reacquired in the manner provided by law.” The term “citizen” for estate
tax purposes refers to either resident citizen or nonresident citizen.

If the decedent is a nonresident alien, gross estate includes all property situated in the
Philippines only and in the case of intangible personal property, it may be excluded from
the gross estate subject to reciprocity clause.
A decedent is a nonresident alien if he does not live in the Philippines and he is not a citizen
thereof. Intangible personal properties of a nonresident alien may be included in the gross estate
only if (1) these are situated in the Philippines; and (2) a reciprocity clause does not apply.
The Tax Code specifically enumerates the following, among others, as intangible properties located
in the Philippines:
a. Franchise which must be exercised in the Philippines.
b. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws.
c. Shares, obligations or bonds issued by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines.
d. Shares, obligations or bonds issued by any foreign corporation, if such shares, obligations or
bonds have acquired a business situs in the Philippines; and
e. Shares or rights in any partnership, business or industry in the Philippines.
There is reciprocity clause if:
a. If the decedent at the time of his death was a citizen and resident of a foreign country which at
the time of death did not impose a transfer or death tax of any character in respect of intangible
personal property of citizens of the Philippines not residing in that foreign country.
b. If the laws of the foreign country of which the decedent was a citizen and resident at the time of
death allows a similar exemption from transfer taxes or death taxes of every character in
respect of intangible personal property owned by citizens of the Philippines not residing in that
foreign country.

2. Civil status of the decedent such as:

a. Single
b. Married

If the decedent is single, the properties in the gross estate are classified as exclusive
properties only (including his share in properties jointly owned with other persons).
These properties may be either or both real or personal (tangible or intangible), actual or property
deemed owned and either Philippine properties only or World Properties depending on whether the
decedent is either (1) resident or citizen; or (2) nonresident alien.

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If the decedent is married, the properties in the gross estate are classified into exclusive
properties of the decedent and conjugal or community properties of the spouses. The
determination of which properties are exclusively owned by the decedent and which are conjugal or
community properties depends on the property regimes (or relationship) entered into between the
spouses before their marriage or the applicable laws at the time of the celebration their marriage
when none has been agreed upon by the spouses or if the one entered into has been declared
void. The property relationship of spouses is discussed in the following section.
Take note: When the decedent is married gross estate shall include the decedent’s
exclusive property plus the spouses total (not one-half) conjugal or community property.

3. Property Relationship of spouses such as:

a. Conjugal partnership of gains
b. Absolute community of property
Under the Philippine laws, the property relationship between the spouses shall be governed by
contract executed before their marriage, which may be:
a. Conjugal partnership of gains;
b. Absolute community of property;
c. Complete separation of property;
d. Other property regimes.
Under the conjugal partnership of gains all properties are considered conjugal except the
following (which are considered as exclusive properties):
a. Those which are brought to the marriage as his or her own;
b. Those which are acquired during marriage through gratuitous title;
c. Those which are acquired by right of redemption or by exchange of property belonging to
only one of the spouses;
d. Those acquired through the use of the exclusive funds of either of the spouses.
Take note:
a. The fruits or income of any property whether acquired before or during marriage as well as
income from the labor, industry, skills, occupation and practice of profession of either
spouse belong to the conjugal fund.
b. All properties existing at the time of death that cannot be identified to be exclusive
properties of either spouse shall be presumed to be conjugal properties.
c. The family home constituted by the spouses is conjugal property. However, exclusive
property does not become conjugal property just because it is used as family home.
d. All properties acquired during the marriage, whether the acquisition appears to have been
made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved.
e. Property bought on installments, paid partly from exclusive funds of either or both spouses
and partly from conjugal funds belongs to the buyer or buyers if full ownership was vested
before the marriage, and to the conjugal partnership if such ownership is vested during
marriage. In either case, any amount advanced by the partnership or by either or both
spouses shall be reimbursed by the owner or owners upon liquidation of the partnership.
f. The proceeds of life insurance taken out by the decedent on his own life, when includible
in the gross estate, will be exclusive or conjugal depending on the source of the funds
used to pay the premiums of such insurance policy. Thus, it will be considered exclusive
property if the premiums were paid out of exclusive funds and conjugal if the premiums
were paid out of conjugal funds.
g. A claim against an insolvent person will be included in the gross estate as exclusive
property if it belongs to the exclusive property of the decedent and conjugal property if it
belongs to the conjugal property of the spouses.

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Accordingly, the following properties are considered as conjugal properties of the spouses:
a. Those which are acquired by onerous title during the marriage at the expense of the
common fund, whether the acquisition be for the partnership, or for only one of the
spouses;
b. That which is obtained by labor, industry, or work, or profession of either or both of the
spouses;
c. The fruits received or due during the marriage, coming from the common property or from
the exclusive property of each spouse;
d. The share in the hidden treasure discovered during the marriage, which the law awards to
the spouses, or to either of them, as finder or proprietor;
e. Improvements on the separate property of the spouses at the expense of the partnership,
or through the industry of the spouses, or of either of them.
Under the absolute community of property all properties are considered community or
common except the following (which are considered as exclusive properties):
a. Properties acquired during the marriage by gratuitous title by either spouse, and the fruits
as well as the income thereof, if any, unless it is expressly provided by the donor, testator
or grantor that they will be part of the community property;
b. Property for personal and exclusive use of either spouse, however, jewelry will form part of
the community property;
c. Property acquired before the marriage by either spouse who have legitimate descendants
by a former marriage, and the fruits as well as the income, if any, of such property.
Take note:
a. In general, anything acquired during the marriage by purchase with exclusive funds, or by
exchange with exclusive property, will be considered exclusive property.
b. In general, the community property will consists of all properties owned by the spouses at
the time of the celebration of the marriage or acquired thereafter.
c. Property acquired during the marriage will be presumed to belong to the community,
unless it can be proven to be exclusive property.
d. The family home constituted by the spouses is community property. Exclusive property
does not become community property just because it is used as family home.
e. The proceeds of life insurance taken out by the decedent on his own life, when includible
in the gross estate, will be exclusive or conjugal depending on the source of the funds
used to pay the premiums of such insurance policy. Thus, it will be considered exclusive
property if the premiums were paid out of exclusive funds and community if the premiums
were paid out of community funds.
In cases when there is no property regime entered into by the spouses before their
marriage or when the one entered into is declared void, the following rules shall apply:
a. If their marriage was celebrated before August 3, 1988 (the date of the effectivity of the
new Family Code), the conjugal partnership of gains regime shall govern their property
relationship.
b. If their marriage was celebrated on or after August 3, 1988 (the date of the effectivity of the
new Family Code), the absolute community of property regime shall govern their property
relationship.
4. Aside from the classifications mentioned above, the properties included in the gross estate may be
further classified as either:
a. Actual property owned (Physically in the estate), or
b. Property deemed owned (Not physically in the estate).
Actual property owned or properties physically in the estate refers to properties that are
actually titled in the name of the decedent and exist at the time of his death. This may
include the equity in properties jointly owned with third parties (persons other than the
surviving spouse) in the case of married decedent. When the decedent is married,

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actual property owned may be either exclusive property of the decedent or common
property (either conjugal or community as the case may be) of the spouses.
Properties deemed owned or properties not physically in the estate refer to properties
which at the time of the decedent’s death are no longer or not yet in the inventory of the
properties of the estate because they were transferred by the decedent during his
lifetime or the property is receivable by the decedent’s beneficiary. A value from such
properties will be included in the computation of the gross estate if the properties were
transferred under the following circumstances:
a. Transfer in contemplation of death;
b. Revocable transfers;
c. Transfer under a general power of appointment;
d. Transfer for insufficient or inadequate consideration;
e. Proceeds of life insurance

Transfer in contemplation of death

A transfer in contemplation of death is a transfer motivated by the thought of death, although death
may not be imminent. A donation mortis causa is a transfer in contemplation of death.

Revocable transfer
A revocable transfer is a transfer where the terms of enjoyment of the property may be altered,
amended, revoked or terminated by the decedent. It is enough that the decedent had the power to
revoke, though he did not exercise the power to revoke.

Transfer under a general power of appointment

A power of appointment is the right to designate the person or persons who will succeed to the
property of a prior decedent.

A power of appointment may be a general power of appointment or a limited or special power of

appointment. A general power of appointment is one which may be exercised in favor of anybody.
A limited power of appointment is one which may be exercised only in favor of a certain person or
persons designated by the prior decedent. In order that property passing under a power of
appointment may be included in the gross estate of the transferor, the power of appointment must
be a general power of appointment.

Transfer for insufficient consideration

In order to be included in the gross estate and be subject to estate tax, a transfer for insufficient
consideration must be made under any of the three (3) previously mentioned transfers such as (a)
in contemplation of death; (b) revocable transfers; (c) passing under a general power of
appointment. In addition, the value to be included is the excess of the fair market value of the
property transferred on the date of death over the consideration received on the date of transfer. At
least one of the preceding conditions must be met otherwise the transfer shall be subject to donor’s
tax as a simple donation rather than to estate tax as in succession.

NOTE: There is no value to be included in the gross estate in any of the following circumstances:
a. If the transfer was in the nature of a bona fide sale for an adequate and full consideration in
money or money’s worth.
b. If the transfer involves real property held as capital assets which is always subject to 6% final
tax based on the Fair market value or gross selling price of the property sold whichever is
higher, the amount of consideration notwithstanding.
c. If the transfer was effective during the lifetime of the transferor which is subject to donor’s tax
instead of estate tax.

Proceeds of life insurance

Proceeds of insurance under policies taken out by the decedent upon his own life is included in the
gross estate if:

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a. The beneficiary is the estate of the decedent, his executor or administrator, whether the
designation is revocable or irrevocable;
b. The beneficiary is a third person and the designation is revocable.
NOTE:
a. Under the Insurance Code of the Philippines, a designation of beneficiary is revocable (this is
the general rule if the problem is silent), unless stated expressly by the insured, and indicated
in the policy, that the designation is irrevocable.
b. The following proceeds of insurance policies are exempt from estate tax and are not included
in the gross estate: (1) group insurance policies; (2) amounts received for war damages; (3)
amounts received from the U.S. Veterans Administration; (3) Benefits received from GSIS and
SSS.
c. For property transfers in contemplation of death, subject to revocation, and passing under a
general power of appointment, in the case of nonresident alien decedent, in order to be
included in the gross estate, the property must be situated in the Philippines at the time of
death.

Exclusion and Exemptions from Gross Estate

The following transfer or transmission of properties are also exempted and should be excluded
from gross estate (section 87 of the NIRC):
a. The merger of the usufruct in the owner of the naked title;
b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicomissary;
c. The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the will of the predecessor;
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions
no part of the net income of which inures to the benefit of any individual. Provided, that not
more than thirty percent (30%) of the said bequests, legacies or transfers shall be used by
such institutions for administrative purposes.

The value of the property in exemptions letters (a), (b), and (c) need not be included in the gross
estate anymore. Exemption letter (d), on the other hand, must be included in the gross estate and
at the same time as part of the allowed deductions from the gross estate, effectively making it
exempted from estate tax. This is because the exemption is subject to the conditions that “not
more than thirty percent (30%) of the bequests, legacies and transfers shall be used for
administration purposes,” and the satisfaction of this condition is subject to the verification of the
BIR. If the condition is not met, then the deduction shall be disallowed and the transfer, in effect,
become subject to estate tax.

Valuation of the properties in the Gross Estate

The gross estate shall be valued at its fair market value at the time of the decedent’s death.

In case of real property, the value shall be the current and fair market value, as shown in the
schedule of values fixed by the Provincial and City Assessors, or the fair market value as
determined by the Commissioner of Internal Revenue (zonal value), whichever is higher.

In case of personal property recently acquired by the decedent, the purchase price may indicate
the fair market value. In case of personal property not recently acquired, there should be some
evidence of fair market value.

 END GROSS ESTATE LECTURE 

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LEARNING EXERCISES
Problem 1
The executor of an unmarried decedent, who died on November 28, 2002, presented us the following
inventory of property in the estate:
a. Residential house and lot in the U.S.A., acquired at P560,000, with current fair market value of
P850,000.
b. Residential house and lot in Manila (registered as family home) with a book value of P800,000 but
currently valued at P1,450,000.
c. Car in Japan, costing P500,000 but currently valued at P400,000.
d. Furniture and fixtures in Canada, worth P100,000.
e. Jewelries in the Philippines. Acquired for P150,000, currently valued at P300,000.
f. Apartment and lot in the Philippines. Costing P500,000, with book value of P400,000 but presently
appraised at P800,000.
g. Life insurance proceeds in the Philippines on an insurance policy on his life, with the executor of
his estate as the irrevocably designated beneficiary, P500,000.
h. Cash in Bank in the Philippines, P125,000.
i. Fair value of a house and lot in Marikina, jointly owned with a friend who has 40% equity,
P700,000.
j. Certificate of stocks of a domestic corporation in the Philippines acquired for P100,000 but fairly
valued at P150,000.
k. Certificate of bonds of foreign corporations in the USA worth P120,000.
l. Cash time deposit held at PNB-Makati amounting to P1,350,000 representing P1,200,000 benefits
received from GSIS and P150,000 interest earned on the account since it was deposited.
m. Cash time deposit at RCBC amounting to P250,000 representing savings from his lifetime earnings
from employment.
n. Other assets in the Philippines with aggregate fair market value amounting to P500,000.
o. Assets transferred by the decedent during his lifetime as follows:
(1) Second hand Toyota car then worth P350,000, transferred to his brother subject to revocation.
Said asset had a current fair market value equivalent to 60% of said property when transferred.
(2) Various appliances and furniture with aggregate book value equal to P50,000 on the date of
death but given as donation inter-vivos to a brother before the decedent died.
(3) A Honda motorcycle worth P40,000 given as donation mortis causa to a friend, who later sold it
to another friend for P35,000. The said property was fairly valued at P50,000 when acquired
by the decedent before the date of death.
Required:
1. Compute the gross estate assuming the decedent is a:
a. Resident or Citizen of the Philippines.
b. Nonresident alien and the reciprocity clause does not apply.
c. Nonresident alien and the reciprocity clause applies.
2. Assuming the decedent is married and the properties in letters a, c, e and n are conjugal or community
property, compute the exclusive and conjugal estate assuming the decedent is:
a. Resident or Citizen of the Philippines.
b. Nonresident alien and the reciprocity clause does not apply.
c. Nonresident alien and the reciprocity clause applies.

Problem 2
Mr. Gas Co inherited cash of P1,000,000 during the marriage. He deposited this amount with the bank.
After some time the cash in the bank earned P100,000. Compute the amount of exclusive and conjugal
properties to be included in the gross estate of Mr. Gas Co assuming the property regime entered into was:
a. Conjugal partnership of gains;
b. Absolute community of property.

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Problem 3
Mr. Hayno bought a car in installments, with title immediately transferred to him, but with a mortgage
constituted on the car. Out of installment price of P550,000, P440,000 was already paid before he got
married. The remaining P110,000 was principal of P100,000 and interest of P10,000, fully paid out of the
income of the spouses before Mr. Hayno died. If the value of the car at the time of death was P300,000,
how much should be reported as conjugal property? How much should be reported as exclusive property?

Problem 4
Mr. Minamalas died leaving properties, with their corresponding values, and obligations, that follow:
Land, inherited 18 months before death (with fair market value of P250,000 when inherited and P360,000
at the time of death. This property is also subject to a mortgage amounting to P90,000 when inherited
P50,000 of which was paid by Mr. Minamalas before he died.
Residential house and lot acquired during the marriage (family home), P270,000.
Personal properties acquired during the marriage, P170,000.
Charges against conjugal properties, P80,000.
Unpaid mortgage on inherited land, P40,000.
Required: Compute the taxable gross estate.

Problem 5
Mr. Inaalat, a citizen of the Philippines and a resident of Quiapo, Manila, died on November 19, 2002,
survived by the spouse, leaving properties inherited on June 2, 1999 from his father, and properties
acquired during marriage worth as follows:
Land inherited from the father, P1,200,000.
Car inherited from the father, P100,000.
House and lot acquired during the marriage (family home), P1,410,000.
Other personal properties acquired during the marriage, P2,140,000.
The following were considered as deductions from the gross estate:
Actual funeral expenses, P300,000.
Judicial expenses, P185,000.
Other claims against the estate, P15,000.
The estate of the father of Mr. Inaalat paid the estate tax on the land and car at the fair market values of
P900,000 for the land and P120,000 for the car.

Required: Compute the gross estate and the taxable net estate of Mr. Inaalat.

Problem 6
Mr. Namayapa, a citizen and resident of the Philippines died on June 4, 2003, survived by the spouse. The
property relationship between the spouses was the conjugal partnership of gains. He left the following
properties and obligations:

Conjugal property, P2,000,000.

Exclusive property, P1,000,000.
Obligations of conjugal property, P200,000.
Obligations of exclusive property, P100,000.

Required: Compute the Gross Estate and the Taxable Net Estate

Problem 7
Mr. Nadido inherited a piece of agricultural land before the marriage. At the time he inherited the land, it
had a mortgage. During the marriage, he received a donation of a car that he used exclusively, with a
mortgage for an unpaid price. Mr. Nadido did not pay any of the mortgage indebtedness. Under the
absolute community of property, which property should be considered exclusive and which property should
be considered community?

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Problem 8

Mr. Tristan Dizon, a citizen of the Philippines and a resident of Manila, died on November 11, 2003,
survived by his spouse, leaving exclusive and conjugal properties, with their worth, as follows:

Personal properties inherited from his father

who died in 1995
P 300,000
Real property (family home) acquired during
the marriage through his own efforts
350,000
Cash received as gift from his father in 1994
1,040,000
Real property (land) purchased out of cash
inherited in 1993 from his mother
200,000
Real property acquired during the marriage
(unidentified as to whose efforts resulted in
the acquisition
600,000
Exclusive properties of the wife
400,000

Other information:
1. Medical expenses of the last illness (during the last two months of the decedent’s life) amounted to
P100,000.
2. The decedent had a claim against an admittedly insolvent person (not included in the information given
above) of P10,000.
3. Actual funeral expenses paid out of the estate amounted to P120,000.
4. Judicial expenses (attorney’s fees, etc.) of testamentary proceedings amounted to P200,000.
5. Claims against conjugal properties amounted to P105,000.
6. A mortgage existed on the car inherited from the father. The father constituted the mortgage on the
property when he (father) borrowed money to travel abroad. There was an unpaid mortgage of
P10,000 at the date of the death of Mr. Dizon.

Required:
a. Compute the gross estate.
b. Compute the allowed deductions, taxable net estate and estate tax due.

Problem 9

Mr. Ricardo Ortiz, a citizen of the Philippines and a resident of Quezon City, died on November 2003,
survived by the spouse, leaving properties inherited on June 2, 2000 from his father, and properties
acquired during marriage, worth as follows:

Land inherited from the father

P1,200,000
Car inherited from the father

100,000
House and lot acquired during the
marriage (family home)

1,410,000

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Household furniture and appliances

acquired during the marriage

150,000
Other personal properties acquired
during the marriage

2,140,000

The following were being considered as deductions from the gross estate:
Actual funeral expenses P300,000
Judicial expenses 185,000
Other claims against the estate 15,000

The estate of the father of Mr. Ortiz paid the estate tax on the land and car at the fair market values of
P900,000 for the land and P120,000 for the car.

Problem 10

Mr. Armando Garcia, a citizen of the Philippines, died married, under the system of conjugal partnership of
gains, survived by the spouse, leaving personal and real properties, and obligations, (condensed) as
follows:
Mrs. Garcia:
Exclusive properties P1,000,000

Mr. Garcia:
Exclusive personal properties 1,000,000
Exclusive real properties:
Lot used for the family home:
Value when house was built 800,000
Value at the time of death 1,100,000
Others 900,000
Conjugal personal properties 2,000,000
Conjugal real properties:
Family home (house) 1,200,000
Others 3,800,000
Unpaid obligations 2,000,000

Required: Compute the:

a. Gross estate
b. Allowed deductions from gross estate
c. Estate tax due and payable

Problem 11

Mr. Rodney Basco, a citizen and resident of the Philippines, under the system of absolute community of
property during the marriage, died leaving the following properties and obligations:

Real properties inherited from the father ten

years ago and before the marriage

P 200,000
Real property received as gift from the
mother seven years ago, and during the
marriage

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1,115,000
Cash-income from the property received as
gift

5,000
Real property owned by Mrs. Basco before
the marriage

300,000
Real property (family home) acquired during
the marriage

500,000
Funeral expenses

50,000
Judicial expenses for the settlement of the
estate

100,000
Unpaid medical expenses of the year

70,000
Obligations incurred during the marriage

150,000
Indebtedness incurred before the marriage
for a pleasure trip of Mr. Basco

120,000

Required: Compute the following:

a. Gross Estate
b. Allowed deductions from gross estate
c. Estate tax due and payable

Problem 12
Mr. Norman Canzon, a citizen and resident of the Philippines, under the system of absolute community of
property during the marriage, died on August 5, 2002, leaving properties and obligations as follows:
Properties owned by Mr. Canzon before the
marriage

P 300,000
Properties owned by Mrs. Canzon before the
marriage

200,000
Property received by Mr. Canzon as inheritance
on February 2, 2001 (during the marriage)

2,000,000
Real property acquired through the labor of Mr.
and Mrs. Canzon during the marriage (family

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home)

1,500,000
Funeral expenses

300,000
Judicial expenses for the settlement of the estate

80,000
Unpaid obligations (not including unpaid
mortgage)

35,000
Unpaid mortgage on property inherited

200,000
The property received as inheritance was part of the gross estate of the prior decedent at a fair market
value of P1,100,000, with a mortgage on it at that time P300,000. Mr. Canzon paid P100,000 during his
lifetime.
Required: Compute the following:
a. Gross Estate
b. Allowed deductions from gross estate
c. Estate tax due and payable

Problem 13

Mrs. Rosa Asuncion, a citizen and resident of the Phlippines, under the system of absolute community of
property when alive, died, leaving the following (condensed):
Land purchased during the marriage
P6,000,000
Land inherited six years before and during the
marriage

1,000,000
Obligations of community property

3,000,000
Obligations of exclusive property

500,000
Required: Compute the following:
a. Gross Estate
b. Allowed deductions from gross estate
c. Estate tax due and payable

Problem 14
Based on the following independent information about transmission of properties during the lifetime of a
donor, determine the amount to be included in the gross estate in case of the transferor’s death.
Case 1 Case 2 Case 3
a. Fair market value at the time of
transfer

P100,000

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P100,000

P100,000
b. Consideration received

100,000

60,000 0
c. Fair market value at the time of
death

180,000

180,000

180,000

Problem 15

Miss Tina Diaz, single, a head of family, a citizen and resident of the Philippines, died on November 10,
2003, leaving the following properties, with their fair market values shown as follows:

a. Piece of land and house thereon (family home)

in Manila, Philippines

P 600,000
b. Vacation house and lot in Toronto, Canada

1,500,000
c. Car in the Philippines

120,000
d. Personal properties in the house in Manila,
Philippines

150,000
e. Jewelry in the Philippines

50,000
f. Claim against an insolvent person in the
Philippines

10,000

And charges thereon, as follows:

Funeral expenses

P 71,500
Judicial expenses for the settlement of the estate

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100,000
Claims against the estate

110,000

Required: Compute the following:

1. Gross Estate
2. Allowed deductions from the gross estate
3. Taxable net estate and estate tax due

Problem 16

Miss Consuelo Dolor, a widow, a citizen and resident of the Philippines, head of family, died leaving the
following properties, with their fair market values as shown below:

Piece of land and residential house (family home) P1,600,000

Agricultural land inherited from her father three and
one-half years ago

420,000
Various real and personal properties

1,180,000

Obligations and charges on the properties were as follows:

Medical expenses of last illness (two days before death) P 600,000
Funeral expenses

50,000
Judicial expenses of the settlement of the estate

100,000
Claims against the estate (other than unpaid mortgage)

230,000
Unpaid mortgage

20,000

The agricultural land was inherited with a fair market value of P370,000 at that time and an unpaid
mortgage of P110,000. Miss Dolor paid P90,000 before she died.
Required: Compute the following:
1. Gross estate
2. Allowed deductions from the gross estate
3. Taxable net estate and estate tax due

Problem 17

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CPA Reviewer in Taxation Prof. R. C. GLORIA

Mr. Romeo Guzman, a citizen and resident of the Philippines, single, a head of family, died on October 1,
2003, leaving the following properties and charges thereon:

Land in Antipolo, Rizal

P2,000,000
Car

500,000
Land and building (family home)

1,500,000
Personal properties

1,000,000
Actual funeral expenses

290,000
Extra-judicial expenses on the partition of the estate

300,000
Claims against the estate

500,000

The land and car were inherited from the mother four and one-half years ago, with the following data:

Land Car
Fair market value when inherited P1,800,000 P600,000
Full payment on mortgage indebtedness

250,000

50,000

Required: Compute the following:

1. Gross estate
2. Vanishing Deduction
3. Total deductions
4. Taxable net estate and estate tax due

Problem 18

Mr. Arnold McBeam, single, a citizen of the Great Britain, died on October 4, 2003, residing in London,
Great Britain, leaving the following real and personal properties, and charges thereon:

Family home in London, Great Britain

P400,000
Land in the Philippines

180,000
Cash deposited in the Philippine National Bank

20,000
Actual funeral expenses

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CPA Reviewer in Taxation Prof. R. C. GLORIA

40,000
Judicial expenses of testamentary proceedings

50,000
Claims against the estate

160,000
Legacy to the Government of the Philippines of
the cash deposited in the Philippine
National Bank (PNB)

20,000

The family home in London was inherited by Mr. McBeam from his father on January 10, 1999. The land in
the Philippines paid the Philippine estate tax on its fair market value of P150,000 at the time of inheritance
from the father.

Problem 19

Based on the following selected information about the estate of different decedents, determine the amount
of funeral expenses to be allowed as deduction from the gross estate.

Decedent A Decedent B Decedent C

Gross estate P3,000,000 P3,000,000 P9,000,000
Actual funeral expenses 120,000 160,000 350,000
Statutory maximum limit 200,000 200,000 200,000
5% of gross estate 150,000 150,000 450,000

Allowed
Problem 20

Mr. Dinoble, during his lifefime, had cash of P100,000. He borrowed P100,000 from Mr. Naonse, a friend
and executed a notarized promissory note for it. The aggregate of P200,000 was maintained in a single
bank account, from which expenses were paid. One year after the note was executed, and the note still
being unpaid, Mr. Dinoble died. The administrator of the estate could not trace payments from the
proceeds of the note. How much is the deductible amount from the gross estate?

Problem 21

The estate of Mr. Sinuerte includes the following claims from various persons:

Mr. Bala Mr. Subas Mr. Mando Mr. Rugas

Receivable P10,000 P20,000 P30,000 P40,000

Personal Assets P50,000 P100,000 P150,000 P200,000

Personal Liabilities:
To preferred creditors 60,000 80,000 100,000 120,000
To unsecured creditors 20,000 40,000 200,000 80,000

Amount in the gross estate

Amount deductible

Based on the above information and ignoring all other deductions, determine the following:

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CPA Reviewer in Taxation Prof. R. C. GLORIA

a. Amount to be included in the gross estate for the above claims.

b. Amount of deductions from the gross estate for claims against insolvent persons

Problem 22
Mr. Bogart, single, inherited a piece of land from his father with a fair market value of P500,000 when
inherited. Two and one-half years later Mr. Bogart died still with the same piece of land, at this time with a
fair market value of P600,000. The gross estate on which, on which the land was part, was P2,000,000.
Deductions from the gross estate (excluding family home, medical expenses, standard deduction or
amount received/receivable under RA 4917) amounted to P400,000. How much is the vanishing
deduction?

Problem 23
Ms. Susy Nasisi, single, inherited a piece of land and a car from her father on March 18, 2000. The estate
tax thereon was paid on the fair market value of the P800,000 for the land and P120,000 for the car. At the
time she inherited the land, it was subject to a mortgage of P80,000. During her lifetime, she paid P70,000
on the mortgage indebtedness. On November 29, 2002, Miss Nasisi died. Included in her gross estate of
P3,200,000 were the land and car which she inherited from her father. On November 29, 2002, the land
had a fair market value of P850,000 and the car had a fair market value of P70,000. Deductions from the
gross estate for expenses, losses, indebtedness, taxes, etc., and transfers for public purposes amounted to
P600,000. How much is the vanishing deduction?

Problem 24
Mr. Dino Buhay, single, a head of family, died leaving as gross estate a family home with a fair market value
of P2,000,000, together with other properties with a fair market value of P500,000. Deductions among
others, were: Funeral expenses of P150,000, judicial expenses of P200,000, and all other deductions of
P1,100,000, not including the family home.
Required: Compute the following:
1. Gross estate
2. Allowed deductions from the gross estate
3. Taxable net estate and estate tax due

Problem 25
Mr. Lino Hinga was hospitalized on a lingering illness. He stayed in the hospital from March 5, 2001 to
September 5, 2002, on which later date he died, incurring expenses, as follows:
March 5 to September 5, 2001, total P250,000
September 6, 2001 to September 5, 2002:
Hospital bills P800,000
Medicines 80,000
Doctor’s professional fees 500,000
Amounts received from:
Philhealth and Social Security System 100,000
Hospitalization and health insurance 400,000

Required: Compute the amount of deductible medical expenses.

Problem 26

Mr. Frank Foreigner, a citizen and resident of a foreign country, single, died leaving a gross estate of
P1,200,000 in the Philippines and P2,400,000 in the foreign country. Expenses, losses, indebtedness,

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CPA Reviewer in Taxation Prof. R. C. GLORIA

taxes, etc., in the Philippines amounted to P600,000 while expenses, losses, indebtedness, taxes, etc., in
the foreign country amounted to P900,000.

Required: Compute the allowed deductions from the gross estate of Mr. Foreigner.

Problem 27

A nonresident citizen decedent, single, had the following data on his death in 2002:
Net estate in the Philippines P1,000,000
Net estate in Singapore 500,000
Net estate in Canada 750,000
Estate tax paid in Singapore 45,000
Estate tax paid in Canada 38,000

Required: Compute for the following:

a. Taxable net estate
b. Allowed estate tax credit
c. Estate tax still payable

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